Capricorn Energy: Beyond the Barrel

Capricorn is now operating under a modernised concession in Egypt that consolidates its previously separate blocks into a single, streamlined licence. This agreement, which came into effect on 1 July 2025, significantly improves fiscal terms, including cost recovery, profit share, and contract duration, giving Capricorn the commercial framework to develop assets that were previously sub-economic. Crucially, the deal extends access to key acreage into the 2040s, enabling multi-year development planning. With the agreement now operational and formal ratification expected in Q1 2026, the company can focus on unlocking the full potential of its core portfolio. The new structure also reduces administrative complexity and enhances capital efficiency across the basin, allowing reinvestment to flow more directly into value-adding drilling and high-grading new development lease areas once ratified.

Capricorn’s development programme for 2025 has delivered strong results, with 18 development wells drilled across the portfolio. New wells brought online in the second half of the year drove production above the midpoint of guidance, ending the year at 20,024 boepd with a 2025 exit rate of 21,003 boepd, a clear sign of operational momentum. Results have been particularly encouraging in the BED area, where development wells and an expanded waterflood programme have outperformed expectations, and in the Lower Bahariya formation, where the BED15-31 well has opened up new follow-on opportunities targeted in early 2026. The NUMB-6 and SEH-6X wells have also confirmed the presence of commercial hydrocarbons and have justified further activity in both licences, including a development lease application at NUMB with first production targeted in 2026. Capricorn’s ability to deliver early results, while maintaining operating costs at $5.4/boe in 2025, supports confidence in the next phase of growth and positions the company well for reserve conversion and future tie-ins.

Capricorn exited 2025 in a materially stronger financial position. Following the full repayment and settlement of its senior debt facility, the company now holds $103m in net cash, comprising $133m cash and $30m junior debt, maintaining a conservative capital structure. This financial strength has been supported by a significant improvement in cash collections, with $217m received in Egypt during 2025 and receivables reduced to $86m, materially strengthening liquidity and enabling self-funded drilling. The company continues to expect reclassification of contingent resources into 2P reserves following ratification and an updated CPR. This reserve growth is tied to assets already under development and drilling today, rather than speculative exploration. With funding in place, debt reduced, and new volumes already online, Capricorn is positioned to grow sustainably while retaining optionality for shareholder returns or disciplined M&A.

• NUMB tie-in and development progress: Following encouraging drilling results delivered in 2025, NUMB is expected to be tied in during early 2026. This represents a low-risk production uplift and validates follow-up drilling plans, shifting the focus from discovery to execution.

• Receivables normalisation: Capricorn received $217m in 2025, reducing receivables to $86m at year end – the lowest level since 2022. Continued payment reliability would further strengthen liquidity confidence and reduce perceived country risk.

• Parliamentary ratification of concession: Parliamentary approval, expected in early 2026, is the final formal step for the integrated concession. The agreement has been operational since July 2025, with economics already in effect. Ratification supports reserve reclassification, high-grading of new development lease areas, and an updated CPR.

• Reserve booking and CPR update: A positive ratification outcome would unlock up to 20 mmboe of 2C resources into 2P reserves and help underpin future capex and drilling plans. It also lays the foundation for a valuation uplift.

• Production uplift and reserve growth: Continued drilling success in BED and surrounding areas under the new terms could materially boost production and prove up extensions, expanding the reserve base over multiple years.

• Strategic M&A delivery: Accretive deals in the UK or MENA region, if executed with capital discipline, could diversify the portfolio and unlock new growth avenues. Investors are watching closely for tangible delivery on this front.

Capricorn has made material progress on its receivables position, with $156m collected from EGPC since June 2025, reducing the balance to ~$84m, the lowest since 2022. While Egypt's macro conditions still pose a structural risk, consistent payments over H2 2025, including a $43m transfer in December, demonstrate improving reliability. The company continues to align investment with in-country collections, further mitigating exposure.

Capricorn is undertaking an aggressive 22-well drilling programme under new fiscal terms in 2025, with the majority loaded into H2. This compressed timeline heightens the risk of execution delays, cost overruns, or underperforming wells. Moreover, the success of NUMB and SEH test wells remains uncertain. A miss on these fronts could diminish investor confidence, slow future reserve growth, and challenge the pace of cash flow ramp-up.

Capricorn’s investment case depends heavily on the integrated concession agreement. While EGPC has approved the new terms, the final step is Egyptian parliamentary ratification. While parliamentary ratification is still required, EGPC Board approval has already unlocked the commercial terms of the deal. The agreement is operationally effective from 1 July 2025. Delays here would slow the formal reclassification of reserves and the CPR update but will not affect near-term field development or cash flow. Any prolonged delay may also erode investor confidence and push back the CPR update tied to the new terms.